Multi-Layered Arrangement Not In Investors’ Favour – RBI

Reserve Bank of IndiaMumbai: The Reserve Bank of India (RBI) is not supporting intermediate holding companies (IHCs) in the banking and financial division. Citing different regulatory fears, the RBI has recommended formulation of Financial Holding Companies (FHCs) or Banking Holding Companies (BHCs) on behalf of intermediate holding companies (IHCs).

The new RBI scheme, if followed out, is likely to have an effect on the plans of SBI and ICICI Bank to make holding companies to take on several financial services under one roof.

In an advisory paper, the Reserve Bank of India has brought up worries that a multi-layer arrangement of an intermediate holding company (IHC) could be a problem in effectual management.

“The multi-layer is not considered good from investors’ point of view as they do not really know where the money invested would be eventually used,” the RBI stated.

In the BHC or FHC framework, the holding company turns into the parent of the group whereas banking and other business concerns become subsidiary companies. This is reverse to the current practice in India where the banking institution is the parent of the assembly with asset management, insurance, securities business as subsidiaries. -

In a banking subsidiary model, the IHCs particularly those blending non-banking subsidiaries/ affiliates of the parent bank, will pose specific difficulties.

But, making a BHC or an FHC could need rectifications in the Banking Regulation Act 1949 or a separate statute law to take in financial actions under the model, the discussion paper said.

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